Helping House-Rich but Cash-Poor Seniors

Increasing medical costs and ongoing social security uncertainty lead many seniors to seek alternatives to supplement their income. Reverse mortgages can provide financial security


While politicians debate the future of social security, for seniors, especially the one-third of Americans over 65 whose social security benefits constitute ninety percent of their total income, this ambiguity creates fear and tension. Seniors in or approaching retirement are increasingly exploring non-traditional avenues, like reverse mortgages, to increase or augment their cash flow without too much disruption of their day-to-day life.

A reverse mortgage is a rapidly growing practice that helps “cash-poor but house-rich” older homeowners convert their home equity into ready money without necessitating a physical change. It is a loan that allows homeowners age 62 or older to borrow against their home equity without selling their home or incurring new monthly mortgage payments. The equity is released tax-free, as a lump sum, a fixed monthly payment, a line of credit or any combination there-of.

How much you can borrow depends on your age, available equity, interest rates and your lender. In general, the older you are the more equity available. Unlike other mortgages, fees for a reverse mortgage are paid up-front. These initial costs may be daunting, but they are the only way to unlock the equity without selling your home.

As of October 2004, reverse mortgage volume was up 109 percent from the previous year according to National Reverse Mortgage Lenders Association. Factors contributing to this rapid growth include low interest rates, increasing property values as the real estate market strengthens, and rising expenses faced by seniors.

There is also greater public awareness about reverse mortgages, with credit unions contributing to this end. For example, according to Mark Seegmiller, Mountain America Credit Union (based in West Jordan , Utah with assets exceeding $1.4 billion) holds seminars at their branches and ice cream socials at local senior centers to educate current and potential members about the benefits of a reverse mortgage.

Within credit unions, there is also a growing trend towards older members. As the graph below indicates, over the last nine years the average age of a credit union member has increased by a full seven years. An older member base implies a greater pool of people who could benefit from their credit union offering a reverse mortgage.




March 28, 2005


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